Molasses and Rum or Why Brazil is not the Model

No discussion of fuel ethanol can go on for very long before Brazil is mentioned. Brazil is the leader, the shining example of biofuel market success, and the model for all others to emulate. That’s the consensus and dissent is almost nonexistent.

And if Brazil is so successful, then it surely must be the sugarcane. We use corn as a feedstock, and they use sugarcane, and they run half their automobiles on ethanol and compete with gasoline without a subsidy. So it must be the cane, it’s got to be the cane, and that’s how you succeed, you grow sugarcane.

Only you can’t grow it very successfully in most parts of the United States. Hawaii, Puerto Rico, Southeast Texas near the Mexican border, southern Florida and southern Louisiana, and that’s about it. So you use something else, something else that produces sugar, ‘cause grain sure won’t work if we’re scaling up to replace gasoline.

So what might that be? Sweet sorghum. It’s fifteen percent sugar just like cane only it grows as far North as Alaska and you can get four crops a year when you can’t even get one with sugar cane in best of circumstances. So that’s it. Think Brazil, only think sorghum instead of sugar cane and we’re well on our way to energy independence.

Or so they say.

Discussions of energy policy have a way of quickly degenerating into a welter of half truths, wishful thinking, and dangerous oversimplifications. That’s because this is a nation of optimists, and intractable problems cannot be acknowledged. Running out of oil? Switch to ethanol. Costs too much? Raise sugar cane. Just like the Brazilians.

Now I happen to like Brazil. There’s a warmth to the people that is both genuine and deeply inveigling and makes you feel when you’re there that the world is a truly good place after all. And, unbeknown to most Americans, there’s an enormous amount of sophisticated industrial development in Brazil, in fact more than in all of the rest of Latin America. So it is not unrealistic to take the Brazilian ethanol industry seriously. It is in fact the most sophisticated and productive in the world, and it’s not standing still. Unfortunately, it is not a good model for the United States to follow, and all of the politicians saying, “if Brazil can do it, we can too,” doesn’t change that fact.

To understand why Brazilian best practices cannot be exported to the U.S., one has to understand both the origins of Brazilian ethanol industry and the way that it operates today. Throughout its more than thirty year history, the Brazilian ethanol industry has followed a unique path that cannot easily be replicated abroad, and it continues to develop in ways that are uniquely Brazilian.

Way back When

Brazil got interested in alternative fuels around the same time we did during the first worldwide oil crises during Yom Kippur War of 1973. Egypt and Israel were locked in a desperate struggle, and Egypt’s Arab allies pressured OPEC to slash production quotas which it did. The flow of oil from the Middle East diminished, albeit briefly, and high prices and panic buying ensued in many places. No one knew what the future would bring, but it was clear that the long standing threat of major Arab oil producers to use oil as a weapon was now fulfilled, and it was apparent that that weapon could be brandished anew in the years to come.

Different countries responded in different ways. In the U.S. the Department of Energy funded vastly more research than before in alternative energy sources, while in the Union of South Africa an active and effective synfuels program was put in place, doubly stimulated by the looming threat of a U.S. led embargo to force that nation’s hand regarding apartheid. Brazil’s political leaders, for their part, decided that a large part of the country’s enormous sugar crop could be diverted to ethanol production, and that a sufficient production could be achieved to supplant a large portion of petroleum imports.

Brazil at the time was a military dictatorship, and the government could impose economic mandates without soliciting the consensus of either the citizenry or the business community, though they were generally sympathetic to the needs of the latter. And, like many Latin American countries of the period, Brazil was highly protectionist and subscribed to the notion of a command economy where central planning plays a dominant role. These characteristics, which most present day economists believe inhibited industrial growth overall, did serve to support a very rapid transition in Brazil’s transportation industry, however.

Petrobras, a state owned petroleum company, virtually controlled the distribution though not the production of motor fuels within the country. When the military decreed that all Petrobras stations must install ethanol pumps, they did so immediately, and ethanol was suddenly available everywhere, not in one tenth of one percent of the gas stations as is the case today in the U.S.

Practically all of the cars on Brazilian roads were manufactured in Brazil, though generally in factories owned by large foreign auto makers, so when the military ordered a flex fuel capability to be engineered into future production runs, the order was quickly carried out. Within a few years a large percentage of cars could burn ethanol and many opted for the cheap, subsidized motor fuel.

The government also put generous subsidies in place to encourage a larger sugar harvest and to make certain that ethanol fetched high guaranteed prices for the distillers. The farmers and distillers responded quickly with vastly increased production.

All in all, the government stimulus to the initially rather small ethanol industry was incomparably more intense than any of the ethanol industry initiatives that have occurred in the U.S. When I first visited Brazil in 1980, a mere seven years after the initiation of the program, ethanol burning cars were ubiquitous on the streets of Rio de Janeiro. Indeed, the whole city stank of alcohol.

Four years later on my second visit, the ethanol pumps were still operating, but the military was out of power, replaced by an elective government trying to undo the effects of years of corruption and government boondoggles. World oil prices had collapsed, and the ethanol program was coming under strong criticism. And as the decade wore on, it appeared that the entire experiment might be abandoned.

That it was not was due to a number of factors. Perhaps the most important of these was that a fueling infrastructure was in place and a large number of vehicles that were optimized for ethanol remained on the road. Ethanol had also become well established as an octane booster, and it was not replaced by anything else. But ethanol definitely fell out of favor as a replacement fuel, and the government subsidies ended.

Interestingly, however, sugar production did not decline, and that it did not was due to a characteristic of the Brazilian sugar industry, and all others, for that matter, that is steadfastly ignored in most discussion of Brazilian ethanol.

Admirers of the Brazilian experiment love to point out how cheap Brazilian ethanol is, and it is cheap, under a dollar a gallon to produce. People assume that such a figure is attributable to some combination of the inherent superiority of the sugarcane feedstock, Brazil’s relatively low labor costs, and high efficiency of Brazilian plants, and indeed the second and third factors are significant. The first is not, however, and the real reason that Brazilian ethanol is so cheap is that it isn’t manufactured with sugar. If it were, the industry would have probably failed.

Why Sugar Ain’t It

But that can’t be true, can it? Everybody says that it’s the sugar, so it must be.

But it’s not. Can sugar is not used in Brazil to produce ethanol except for use in potable spirits.

Instead the distillers use a cane byproduct, namely molasses which mostly goes into animal feed otherwise. The cane sugar continues to sell into its traditional markets, foods and confections and booze, and what had been a low value co-product suddenly becomes valuable.

If, on the other hand, you try to divert the whole sugar crop into ethanol production, then the economics don’t look so good anymore. Making ethanol from cane juice, which is the prinicipal product of the sugar refinery, is actually more expensive than making it out of corn the North American way. More total energy is required, and you also have to deal with the fact that ethanol distilleries are necessarily idle much of the year due to the near impossibility of storing the cut cane for any length of time.

Both the USDA and the government of the Philippines have done lengthy and rigorous studies on the economics of ethanol produced sugar cane, and both have come to the same conclusion, that there is only a good business case when molasses alone is utilized.

The implications of this are pretty grim. At the point where traditional markets for cane sugar are saturated the side business in ethanol starts to founder.

And exactly the same situation obtains with sweet sorghum although the situation is even worse there. Granulated sugar is more expensive to extract from sorghum than from cane though the cultivation of sorghum is generally cheaper. Again, you’re dependent upon the molasses byproduct. And forget about claims of sorghum seed sellers that four crops of year are possible. Maybe in the Everglades they are, but not in the Midwest or anywhere else in the Continental U.S.

But back to Brazil. We pointed out that the ethanol business was languishing in the late eighties. What changed to make it the leviathan it is today?

Mostly the market changed, not the technology and not the industrial base. The point is that while the fuel ethanol industry contracted in the eighties and nineties, it was still vastly larger than in the U.S. and it continued to possess an established and intact infrastructure. When petroleum prices went through the roof in this decade and stayed high, Brazilian distillers quickly ramped up production again, and not only sold well in their home market, they began to export the stuff to the U.S. and Europe.

Brazil has announced ambitious plans for further expanding their ethanol industry, and that is certainly feasible, but as they grow the economics will actually become worse, an almost unique example of where scaling up is ratcheting down. If oil prices continue to rise, the expansion of sugar cultivation might still prove profitable, but the strategy is fraught with risk.

And what about sorghum in the U.S.? Energenetics has a process for making butanol from sorghum that looks promising, but it’s not proven. And as for sugar from sorghum as the primary product, that industry has gone nowhere since the lifting of the Union blockade made cane sugar readily available in the American South, where most of the sweet sorghum has always been cultivated. Today, in fact, almost no sweet sorghum at all is raised in the U.S. It’s a small luxury crop used mostly to produce sorghum syrup for which a tiny specialty market exists.

So forget about Brazil as a universal model. To support such a model here in the U.S. would be disastrous and would yet further travails upon the poor, long suffering American farmer. We need to be looking at other sources for liquid fuels.